nep-gth New Economics Papers
on Game Theory
Issue of 2018‒04‒16
eighteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Intuitive Solutions in Game Representations: The Shapley Value Revisited By Pradeep Dubey
  2. Decentralized bargaining in matching markets: efficient stationary equilibria and the core By Elliott, Matt; Nava, Francesco
  3. An Econometric Model of Network Formation with an Application to Board Interlocks between Firms By Gualdani, Cristina
  4. Unilateral Support Equilibria By Schouten, Jop; Borm, Peter; Hendrickx, Ruud
  5. Identification in One-to-One Matching Models with Nonparametric Unobservables By Sinha, Shruti
  6. The Survival and Demise of the State: A Dynamic Theory of Secession By Joan-Maria Esteban; Sabine Flamand; Massimo Morelli; Dominic Rohner
  7. Competing for Talent By Yuhta Ishii; Aniko Ory; Adrien Vigier
  8. The Benefit of Collective Reputation By Zvika Neemam; Aniko Ory; Jungju Yu
  9. Emergence of Cooperation in the thermodynamic limit By Shubhayan Sarkar; Colin Benjamin
  10. Spillovers and R&D Incentive under Incomplete Information By Chatterjee, Rittwik; Chattopadhyay, Srobonti; Kabiraj, Tarun
  11. Group Size Effect and Over-Punishment in the Case of Third Party Enforcement of Social Norms By Kamei, Kenju
  12. Experimentally Induced Empathy does not Affect Monetarily Incentivized Dictator Game Behavior By Lönnqvist, Jan-Erik; Walkowitz, Gari
  13. Stochastic Petropolitics: The Dynamics of Institutions in Resource-Dependent Economies By Raouf Boucekkine; Fabien Prieur; Chrysovalantis Vasilakis; Benteng Zou
  14. Entry Games under Private Information By José-Antonio Espín-Sánchez; Álvaro Parra
  15. Spatial resource wars: A two region example By Fabbri, G.; Faggian, S.; Freni, G.
  16. Friends or Strangers? Strategic Uncertainty and Coordination across Experimental Games of Strategic Complements and Substitutes By Gabriele Chierchia; Fabio Tufano; Giorgio Coricelli
  17. Media, Fake News, and Debunking By Ngo Van Long; Martin Richardson; Frank Stähler
  18. Regional Climate Change Policy under Positive Feedbacks and Strategic Interactions By William Brock; Anastasios Xepapadeas

  1. By: Pradeep Dubey (Stony Brook Center for Game Theory)
    Abstract: We show that any transferable utility game can be represented by an assignment of facilities to players, in which it is intuitively obvious how to allocate the total cost of the facilities. The intuitive solution in the representation turns out to be the Shapley value of the game, and thus serves as an alternative justification of the value.
    Keywords: TU game, Characteristic function, Shapley value, Assignment, Representation
    JEL: C71 C72 D61 D63 D70 D79
    Date: 2018–03
  2. By: Elliott, Matt; Nava, Francesco
    Abstract: This paper studies market clearing in matching markets. The model is non-cooperative, fully decentralized, and in Markov strategies. Workers and firms bargain with each other to determine who will be matched to whom and at what terms of trade. Once a worker firm pair reach agreement they exit the market. Alternative possible matches affect agents' bargaining positions. We ask when do such markets clear efficiently and find that inefficiencies { mismatch and delay { often feature. Mismatch occurs whenever an agent's bargaining position is at risk of deteriorating. Delay occurs whenever agents expect their bargaining position to improve. Delay can be extensive and structured with vertically differentiated markets endogenously clearing from the top down.
    JEL: J1
    Date: 2018–02–08
  3. By: Gualdani, Cristina
    Abstract: The paper provides a framework for partially identifying the parameters governing agents’ preferences in a static game of network formation with interdependent link decisions, complete information, and transferable or non-transferable payoffs. The proposed methodology attenuates the computational difficulties arising at the inference stage - due to the huge number of moment inequalities characterising the sharp identified set and the impossibility of brute-force calculating the integrals entering them - by decomposing the network formation game into local games which have a structure similar to entry games and are such that the network formation game is in equilibrium if and only if each local game is in equilibrium. As an empirical illustration of the developed procedure, the paper estimates firms’ incentives for having executives sitting on the board of competitors, using Italian data.
    Keywords: network formation; pure strategy Nash equilibrium; pairwise stability; multiple equilibria; partial identification; moment inequalities; local games; board interlocks
    JEL: C1 C62
    Date: 2018–03
  4. By: Schouten, Jop (Tilburg University, Center For Economic Research); Borm, Peter (Tilburg University, Center For Economic Research); Hendrickx, Ruud (Tilburg University, Center For Economic Research)
    Abstract: The concept of Berge equilibria is based on supportive behavior among the players: each player is supported by the group of all other players. In this paper, we extend this concept by maintaining the idea of supportive behavior among the players, but eliminating the underlying coordination issues. We suggest to consider individual support rather than group support. The main idea is to introduce support relations, modeled by derangements. In a derangement, every player supports exactly one other player and every player is supported by exactly one other player. Subsequently, we dene a new equilibrium concept, called a unilateral support equilibrium, which is unilaterally supportive with respect to every possible derangement. We show that a unilateral support equilibrium can be characterized in terms of pay-offfunctions so that every player is supported by every other player individually. Moreover, it is shown that every Berge equilibrium is also a unilateral support equilibrium and we provide an example in which there is no Berge equilibrium, while the set of unilateral support equilibria is non-empty. Finally, the relation between the set of unilateral support equilibria and the set of Nash equilibria is explored.
    Keywords: mutual support equilibria; Berge equilibria; unilateral support equilibria
    JEL: C72
    Date: 2018
  5. By: Sinha, Shruti
    Abstract: This paper considers a one-to-one matching model with transferable utilities, in two-sided markets. In the model, the agents have preferences over some observable agent characteristics (called types) on the other side of the market. There are other observed characteristics aggregated at the level of types that determine the systematic preferences over these types. These systematic preferences enter the agent utilities in the form of a linear index. Agents also have idiosyncratic taste shocks. This paper shows the identification of systematic preference parameters over types, without making any parametric assumptions on the distribution of the unobserved taste shocks. The matching model reduces to two separate discrete-choice problems linked together by market clearing conditions, satisfied in the presence of equilibrium transfers. However, transfers are endogenous and unobserved which makes the discrete-choice problem non-standard. This paper gives conditions under which transfers are simply functions of the linear indices. This insight along with variation across i.i.d. markets is used to reduce the matching model to a semiparametric multi-index model with an unknown link function. Identification is shown under appropriate exclusion restrictions on the regressors.
    Keywords: One-to-One Matching; Transfers; Identification
    JEL: C31 C78 J12
    Date: 2018–03
  6. By: Joan-Maria Esteban; Sabine Flamand; Massimo Morelli; Dominic Rohner
    Abstract: This paper analizes the repeated interaction between groups in a country as a repeated Stackelberg game, where conflict and secession can occur on the equilibrium path owing to commitment problems. If a group out of power is small enough and its contribution to total surplus not too large, then the group in power can always maintain peace with an acceptable offer of surplus sharing for every period. When there is a mismatch between the relative size and the relative surplus contribution of the minority group, conflict can occur. While in the static model secession can occur only as a peaceful outcome, in the infinite horizon game with high discount factor secession may result following costly conflict. We discuss our full characterization of equilibrium outcomes in the light of the available empirical evidence.
    Keywords: secessions, conflict, repeated Stackelberg game
    JEL: C7 D74
    Date: 2018–03
  7. By: Yuhta Ishii (Centro de Investigaci´on Econ´omica, Mexico); Aniko Ory (Cowles Foundation, Yale University); Adrien Vigier (BI Norwegian Business School)
    Abstract: In many labor markets, e.g., for lawyers, consultants, MBA students, and professional sport players, workers get offered and sign long-term contracts even though waiting could reveal significant information about their capabilities. This phenomenon is called unraveling. We examine the link between wage bargaining and unraveling. Two firms, an incumbent and an entrant, compete to hire a worker of unknown talent. Informational frictions prevent the incumbent from always observing the entrant’s arrival, inducing unraveling in all equilibria. We analyze the extent of unraveling, surplus shares, the average talent of employed workers, and the distribution of wages within and across firms.
    Keywords: Unraveling, Talent, Wage Bargaining, Competition, Uncertainty
    JEL: C7 D8 J3
    Date: 2018–02
  8. By: Zvika Neemam (Tel Aviv University); Aniko Ory (Cowles Foundation, Yale University); Jungju Yu (Yale School of Management)
    Abstract: We study a model of reputation with two long-lived ?rms that sell their products under a collective brand or under two di?erent individual brands. Firms face a moral hazard problem because their quality investments are not observed. Investments can only be sustained due to reputational concerns. In a collective brand, consumers cannot distinguish between the two ?rms. We show that in the long run, this makes it harder to establish a good reputation because of the incentives to free-ride on the other ?rm’s investments. But in the short run it mitigates the temptation to milk good reputation. Consequently, a collective brand can provide stronger incentives to invest in quality if ?rms are su?iciently impatient. We explain the connection between incentives and the type of industry in which the ?rms operate as captured by the underlying signal structure and consumers’ prior beliefs. We discuss the relation to country-of-origin labelling, agricultural cooperatives, and other collective brands.
    Keywords: Branding, Collective reputation, Commitment, Country of origin
    JEL: C70 D21 D40 D70 L10 L50
    Date: 2016–12
  9. By: Shubhayan Sarkar; Colin Benjamin
    Abstract: Predicting how cooperative behavior arises in the thermodynamic limit is one of the outstanding problems in evolutionary game theory. For two player games, cooperation is seldom the Nash equilibrium. However, in the thermodynamic limit cooperation is the natural recourse regardless of whether we are dealing with humans or animals. In this work, we use the analogy with the Ising model to predict how cooperation arises in the thermodynamic limit.
    Date: 2018–03
  10. By: Chatterjee, Rittwik; Chattopadhyay, Srobonti; Kabiraj, Tarun
    Abstract: Spillovers of R&D outcome affect the R&D decision of a firm. The present paper discusses the R&D incentives of a firm when the extent of R&D spillover is private information to each firm. We construct a two stage game involving two firms when the firms first decide simultaneously whether to invest in R&D or not, then they compete in quantity. Assuming general distribution function of firm types we compare R&D incentives of firms under alternative scenarios based on different informational structures. The paper shows that while R&D spillovers reduce R&D incentives under complete information unambiguously, however, it can be larger under incomplete information.
    Keywords: R&D incentives, Cournot duopoly, Spillovers, Incomplete information
    JEL: D43 D82 L13 O31
    Date: 2018–03–09
  11. By: Kamei, Kenju
    Abstract: One of the important topics in public choice is how people’s free-riding behavior could differ by group size in collective action dilemmas. This paper experimentally studies how the strength of third party punishment in a prisoner’s dilemma could differ by the number of third parties in a group. Our data indicate that as the number of third party punishers increases in a group, the average punishment intensity per third party punisher decreases. However, the decrease rate is very mild and therefore the size of total punishment in a group substantially increases with an increase in group size. As a result, third party punishment becomes a sufficient deterrent against a player selecting defection in the prisoner’s dilemma when the number of third party punishers is sufficiently large. Nevertheless, when there are too many third party punishers in a group, a defector’s expected payoff is far lower than that of a cooperator due to strong aggregate punishment, while some cooperators are even hurt through punishment. Therefore, the group incurs a huge efficiency loss. Such over-punishment results from third party punishers’ conditional punishment behaviors: their punishment intensity is positively correlated with their beliefs on the peers’ punitive actions. Some possible ways to coordinate punishment among peers even when group size is very large, thus enabling the efficiency loss to be mitigated, are also discussed in the paper.
    Keywords: experiment, cooperation, third party punishment, dilemma, group size effect
    JEL: C92 D72 H41
    Date: 2018–02–17
  12. By: Lönnqvist, Jan-Erik; Walkowitz, Gari
    Abstract: In a monetarily incentivized Dictator Game we expected Dictators’ empathy towards the Recipients to cause more pro-social allocations. Empathy was experimentally induced via a commonly used perspective taking task. Dictators (N = 476) were instructed to split an endowment of 10€ between themselves and an unknown Recipient. They could split the money 8/2 (8€ for Dictator, 2€ for Recipient) or 5/5 (5€ each). Although the empathy manipulation successfully increased Dictators’ feelings of empathy towards the Recipients, Dictators’ decisions on how to split the money were not affected. We had ample statistical power (above .99) to detect a typical social psychology effect (corresponding to r around .20). Other possible determinants of generosity in the Dictator Game should be investigated.
    Keywords: Empathy, Dictator Game, Generosity, Altruism, Experimental Economics
    JEL: C72 C91 D03
    Date: 2018–03–13
  13. By: Raouf Boucekkine (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE; Iméra; and Institut Universitaire de France); Fabien Prieur (EconomiX, University Paris Nanterre); Chrysovalantis Vasilakis (University of Bangor and IRES, Universite Catholique de Louvain); Benteng Zou (CREA, University of Luxembourg)
    Abstract: We provide an analysis of institutional dynamics under uncertainty by means of a stochastic differential game of lobbying with two players (conservatives vs liberals) and three main ingredients. The first one is uncertainty inherent in the institutional process itself. The second considers resource windfalls volatility impact on economic and institutional outcomes. Last but not least, the resource windfall level matters in the relative bargaining power of the players. We compute a unique closed-loop equilibrium with linear feedbacks. We show that the legislative state converges to an invariant distribution. Even more importantly, we demonstrate that the most likely asymptotic legislative state is favorable to the liberals. However, the more volatile resource windfalls, the less liberal is the most likely asymptotic state. Finally, we assess the latter prediction on a database covering 91 countries over the period 1973-2005. We focus on financial liberalization policies. We find that as the resources revenues volatility increases, the financial liberalization index goes down. We also find that this property remains robust across different specifications and sample distinctions.
    Keywords: institutional dynamics, petropolitics, lobbying games, revenue-dependent lobbying power, stochastic dynamic games, stochastic stability
    JEL: D72 C73 Q32
    Date: 2018–04
  14. By: José-Antonio Espín-Sánchez (Cowles Foundation, Yale University); Álvaro Parra (Sauder School of Business)
    Abstract: We study market entry decisions when firms have private information about their profitability. We generalize current models by allowing general forms of market competition and heterogeneous firms that self-select when entering the market. Post-entry profits depend on market structure, and on the identities and the private information of the entering firms. We introduce a notion of the firm's strength and show that an equilibrium where players' strategies are ranked by strength, or herculean equilibrium, always exists. Moreover, when profits are elastic enough with respect to the firm's private information, the herculean equilibrium is the unique equilibrium of the game.
    Keywords: Entry, Oligopolistic markets, Private Information
    Date: 2018–04
  15. By: Fabbri, G.; Faggian, S.; Freni, G.
    Abstract: We develop a spatial resource model in continuous time in which two agents strategically exploit a mobile resource in a two-location setup. In order to contrast the overexploitation of the resource (the tragedy of commons) that occurs when the player are free to choose where to fish/hunt/extract/harvest, the regulator can establish a series of spatially structured policies. We compare the three situations in which the regulator: (a) leaves the player free to choose where to harvest; (b) establishes a natural reserve where nobody is allowed to harvest; (c) assigns to each player a specific exclusive location to hunt. We show that when preference parameters dictate a low harvesting intensity, the policies cannot mitigate the overexploitation and in addition they worsen the utilities of the players. Conversely, in a context of harsher harvesting intensity, the intervention can help to safeguard the resource, preventing the extinction and also improving the welfare of both players.
    JEL: Q28 C72 Q23 C61 R12
    Date: 2018
  16. By: Gabriele Chierchia (Center for Mind/Brain Science, University of Trento, and Max Planck Institute for Human Cognitive and Brain Sciences); Fabio Tufano (School of Economics, University of Nottingham); Giorgio Coricelli (Center for Mind/Brain Science, University of Trento, and Department of Economics, University of Southern California)
    Abstract: It is commonly assumed that friendship should generally benefit agents’ ability to tacitly coordinate with others. However, this has never been tested on two “opposite poles†of coordination, namely, games of strategic complements and substitutes. We present an experimental study in which participants interact with either a friend or a stranger in two classic games: the stag hunt game, which exhibits strategic complementarity, and the entry game, which exhibits strategic substitutability. Both games capture a frequent trade-off between a potentially high paying but uncertain action and a lower paying but safe alternative. We find that, relative to strangers, friends exhibit a propensity towards uncertainty in the stag hunt game, but an aversion to uncertainty in the entry game. Friends also “tremble†less than strangers, coordinate better and earn more in the stag hunt game but these advantages are largely decreased, and almost entirely lost in the entry game. Friendship thus appears to have a very different impact on coordination games involving strategic complements and substitutes. We further investigate the role of interpersonal similarities and friendship qualities in this differential impact.
    Keywords: coordination; entry game; friendship; strategic complementarity; strategic substitutability; stag hunt game; strategic uncertainty
    Date: 2018–01
  17. By: Ngo Van Long; Martin Richardson; Frank Stähler
    Abstract: We construct a Hotelling-type model of two media providers, each of whom can issue fake and/or real news and each of whom can invest in the debunking of their rival’s fake news. The model assumes that consumers have an innate preference for one provider or the other and value real news. However, that valuation varies according to their bias favoring one provider or the other. We demonstrate a unique subgame perfect Nash equilibrium in which only one firm issues fake news and we show, in this setting, that increased polarization of consumers - represented by a wider distribution - increases the prevalence of both fake news and debunking expenditures and is welfare reducing. We also show, inter alia, that a stronger preference by consumers for their preferred provider lowers both fake news and debunking. Finally, we compare monopoly and duopoly market structures in terms of “fake news” provision and show that a public news provider can be welfare improving.
    Keywords: fake news, media, debunking
    JEL: D21 L15 L82
    Date: 2018
  18. By: William Brock; Anastasios Xepapadeas
    Abstract: The surface albedo feedback, along with heat and moisture transport from the Equator to the Poles, is associated with polar amplification which is a well-established scientific fact. The present paper extends Brock and Xepapadeas (2017a) to a non-cooperative framework with polar amplification, where regions decide emissions by maximizing own welfare. This can be regarded as a case of regional non-cooperation regarding climate change.Open loop and feedback solutions are derived and compared, in terms of temperature paths and welfare, with the cooperative solution. Carbon taxes which could bridge the gap between cooperative and non-cooperative emissions path are also derived. Finally, the framework is extended to a Ramsey set-up in which it is shown how the regional climate model can be coupled with standard optimal growth models. Numerical simulations confirm the theoretical results and provide insights about the size and the direction of deviations between the cooperative and the non-cooperative solutions.
    Keywords: Arctic amplification, Spatial heat and moisture transport, Optimal policy, Emission taxes, Open loop, Feedback Nash Equilibrium
    JEL: Q54 Q58
    Date: 2018–02–20

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